Olo, a multi-sided platform for the chain restaurant industry filed its S-1 last week. It is a fascinating business in a dynamic market–online food ordering and delivery.
Olo’s numbers are gaudy:
- 94% Y/Y revenue growth
- 120%+ Net Revenue Retention
- 81% Gross Margin
- 16% Operating Margin. (You read that right, Olo makes money. How old-fashioned!)
You can read a thorough analysis of Olo’s SaaS metrics relative to those of other public SaaS companies here. Instead, I want to discuss Oro in the context of multi-sided platforms. I also want to shed some light on why Olo is profitable–since that is so rare these days.
Quick Background on Restaurant Ordering and Delivery
Unless you are Rip Van Winkle (or never eat out), you know that we don’t go to restaurants anymore, we order from them online. We then either pick the food up, have it delivered by the restaurant itself, or use a delivery service partner (DSP) to deliver the food.
As Olo tells us in the S-1:
Even before the onset of the COVID-19 pandemic, off-premise consumption accounted for 60% of restaurant orders in 2020, and was expected to contribute 70% to 80% of total restaurant industry growth in the next five years, according to the National Restaurant Association. Meanwhile, delivery continues to grow as a percentage of sales. The average portion of total sales from third-party delivery in the 12 months ending August 2019 was 6.5%. Even prior to the COVID-19 pandemic, that was expected to increase to 10% in 2020. (My emphasis added.)
As you also know, there is a pitched battle over who will own the platforms for restaurant ordering and delivery. DoorDash and UberEats want you to go to their sites to order and arrange delivery, thus disintermediating the restaurant. But these companies take big margins (20%+) as I wrote about here.
As the Wall Street Journal recently pointed out restaurants are fighting back. The article highlights several companies helping independent restaurants avoid the commissions levied by DoorDash and UberEats. In fact, one way to think about Olo is as the chain restaurants’ strategy to fight back against these aggregators and put the restaurant chain brand back at the center of the customer experience.
Olo As a Multi-Sided Platform
Olo describes itself as providing:
…restaurants with a business-to-business-to-consumer, enterprise-grade, open SaaS platform to manage their complex digital businesses and enable fast and more personalized experiences for their customers. Our platform and application programming interfaces, or APIs, seamlessly integrate with a wide range of solutions, unifying disparate technologies across the restaurant ecosystem.
If Olo was just a SaaS application for helping restaurant chains provide an e-commerce front-end for consumers, it would be a B2BC portal. But it’s not just that. Olo has two other modules (that 71% of its customers own) that make it more of a multi-sided platform.
Dispatch creates a marketplace of last-mile delivery options for the restaurant. Here’s how the S-1 describes the module:
Our Dispatch module enables restaurants to automatically select the optimal delivery provider for an individual order based on dozens of attributes, such as delivery time, order size or value, cost of delivery, or service level, for each individual order at each individual location. Restaurant brands are able to fulfill orders just-in-time to allow for a better consumer experience at a competitive cost.
In other words, Dispatch tries to connect to the DSPs but subjugates them.
The Olo Rails module helps chains:
- Syndicate menu and location information to the marketplaces of the world like DoorDash
- Consolidate orders from all of the different platforms into Olo and the restaurant POS
- Provide reporting at the brand and restaurant-level on cross-platform performance.
So, in the end, Olo is a platform connecting:
- Chain restaurants to consumers for ordering
- Individual locations to their parent brands
- Chain restaurant locations to local delivery options
- Chain restaurants to other marketplaces and aggregators (as well as non-marketplace digital channels such as Google Food ordering).
Clash of the Platform Titans
Olo’s S-1 discloses that DoorDash, accounted for 19% of total company revenue by virtue of its use of the Rails module. (Apparently, DoorDash accounted for a substantial majority of transactional revenue from the Rails module, so Rails could be 25-30% of Olo revenue.) Olo also disclosed that DoorDash filed a $7 million lawsuit against Olo alleging breach of contract related to fees. It looks like there is a vigorous form of platform “competition” going on here. Two platforms battling for ownership of the consumer experience.
Why is Olo Profitable?
In a sea of growing SaaS companies drowning in red ink, why is Olo already profitable? I’m sure there are many reasons, but one stands out above all else. Olo spends just 9% of revenue on sales and marketing. As Clouded Judgement points out this “is the lowest of all the [public] SaaS companies (by a long shot). Real Page is the next closest at 16%. The median is 44%.”
Of course, this fact does not really explain how Olo manages to spend so little on sales and marketing, just that it does! Olo’s S-1 sheds a little more light:
We have a highly efficient go-to-market model as a result of our industry thought leadership, partnership approach with our restaurant customers, and experienced enterprise sales, customer success, and deployment teams. Unlike other enterprise software businesses, where the sales team works to add a single location or division and expand to others, we enter into relationships at the brand’s corporate level and secure exclusivity across all company-owned and franchise locations.
Even for an enterprise SaaS company, 9% is very attractive! Let’s see if they can stay so efficient, continue to fend off the other platforms, and thrive beyond the end of the pandemic.